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Cote v. Derby Insurance Agency, Inc.

Supreme Court of Iowa

March 9, 2018

JOANNE COTE, Appellee,
v.
DERBY INSURANCE AGENCY, INC., an Iowa Corporation, and KEVIN DORN, Individually, Appellants.

         On review from the Iowa Court of Appeals.

         Appeal from the Iowa District Court for Woodbury County, Jeffrey L. Poulson, Judge.

         Employer seeks further review of court of appeals decision affirming district court ruling that corporation could not claim family-member exception to employee-numerosity requirement in Iowa Civil Rights Act.

          Edward F. Pohren and Aaron F. Smeall of Smith, Slusky, Pohren & Rogers, LLP, Omaha, Nebraska, for appellants.

          Jay E. Denne and Stanley E. Munger of Munger, Reinschmidt & Denne, LLP, Sioux City, for appellee.

          WATERMAN, Justice.

         In this appeal, we must decide whether a small business that incorporates thereby loses the family-member exception to the employee-numerosity requirement in the Iowa Civil Rights Act (ICRA). The ICRA does not apply to "[a]ny employer who regularly employs less than four individuals. . . . [I]ndividuals who are members of the employer's family shall not be counted as employees." Iowa Code § 216.6(6)(a) (2011). The plaintiff worked at a small insurance agency and alleges she was sexually harassed by her supervisor, the sole owner's husband. The defendant insurance agency, a subchapter S corporation, employed the owner and her husband, niece, and grandniece, as well as the plaintiff and another nonfamily member. The employer moved for summary judgment on the ICRA claims on grounds that it employed fewer than four individuals (not counting the family members). The district court denied summary judgment on that ground, ruling that a corporate employer is ineligible for the family-member exception. We granted the employer's application for interlocutory appeal and transferred the case to the court of appeals, which affirmed that ruling. We granted the employer's application for further review.

         We hold that a corporation does not have family members and therefore cannot qualify for the family-member exception in section 216.6(6)(a). Accordingly, for the reasons explained more fully below, we affirm the decision of the court of appeals.

         I. Background Facts and Proceedings.

         Patricia Georgesen started a small insurance business named Derby Insurance Agency (Derby), a subchapter S corporation, in 1991. She is the sole shareholder and president of Derby, which is located in Sioux City. Patricia married Kevin Dorn in 2000 and changed her last name to Dorn. Both of them worked at Derby selling insurance. Kevin served as a manager and supervisor.

         Joanne Cote began working for Derby as a customer service representative on May 6, 1998. She also performed administrative tasks, such as reconciling Derby's bank statements, ordering supplies, and training new employees. Cote considered both Patricia and Kevin to be her bosses. In 2003, Cote was promoted to office manager.

         From November 2010 to October 2012, Derby employed the Dorns, Cote, and Patricia Strawn, who is Patricia Dorn's niece. Derby also employed Scott Delperdang until February 2012. After he left, Derby hired Candice Hunter, who worked for Derby until October 2012. Additionally, Jasmine Derby, Patricia Dorn's grandniece, worked part-time at Derby during the summer of 2012 to help with filing. During the eight weeks she worked there, Jasmine averaged twelve hours weekly. She was paid $10 per hour.

         On October 10, 2012, Derby sold its assets, goodwill, and book of business to Derby Insurance Services, Inc. (Services). Derby ceased operating as an insurance agency. Cote began working for Services and continued to do so until March 19, 2014. Patricia Strawn also began working for Services and became the office manager.

         Cote filed a complaint of discrimination with the Iowa Civil Rights Commission (ICRC) on April 10, 2013. Cote alleged that Kevin sexually harassed her and other female colleagues over a seven-year period. The ICRC issued Cote an administrative release on January 10, 2014. Cote filed a petition in district court on April 7, 2014, naming Derby and Kevin as defendants. Cote alleged claims for sex discrimination based on a hostile work environment under the ICRA, Iowa Code chapter 216.[1] Cote later filed a motion to amend, ...


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